November/December 2003
Many of you have just gone through a difficult insurance renewal period. I can hear you asking yourself, “How could my premiums increase so dramatically when I didn’t have any claims, or at least not any big ones?”
Part of the answer is that the insurance industry is currently undergoing a significant “correction.” Many factors have brought about this correction, including more than a decade of “soft” insurance pricing, an increase in catastrophic losses, inflation in medical costs, abuse of the legal system, the Sept. 11 tragedy, and the recent recession in the U.S. economy, which led to the lowest interest rates in years. Add to those overall factors a string of large losses specifically in the RecycleGuardsm insurance program, and the result is the need for significant premium increases to return the program to a profitable level.
To put these recent developments in perspective, let’s take a step back and look at the big picture behind the RecycleGuard program.
The ‘Why’ Behind the Program
A good place to start is by asking the questions: Why does ReMA have a sponsored insurance program in the first place? And how does such a program work?
When it comes to insurance, the scrap recycling industry would definitely fall into a more hazardous class of business to insure than, for example, the bakery industry. The strength of a sponsored insurance program such as RecycleGuard is that the program can offer coverage for risks that might not be eligible for coverage on their own. That’s because, in a program, the premiums from all the participants go into one big bucket, so to speak. This allows an insurance company to spread the various risks.
One of the drawbacks of a sponsored insurance program, however, is that the losses for all are paid out of that same bucket, so those with no losses share in the increased cost caused by those who submitted claims for losses. If the losses are greater than the premiums collected for the program, then the premiums must be increased. If the reverse occurs—that is, if the collected premiums match or exceed the losses claimed in the program—then premiums either stay level or, eventually, decrease.
It has been ISRI’s goal to make sure that its members have access to an insurance carrier that is financially strong and able to provide competitive coverage that meets the needs of the majority of members. That doesn’t mean that the program will always be the least-expensive option for a given recycler, but it will be there as a viable alternative.
RecycleGuard is that program. The ISRI-sponsored RecycleGuard program is committed to providing insurance through carriers that are rated A or better by A.M. Best Co. Keep in mind that all insurance carriers aren’t created equal. In essence, insurance is a promise to pay. Should you suffer a claim, you fully expect that the premium you paid will ensure that the claim is paid.
Unfortunately, this isn’t always the case. Since 2000, 105 insurance carriers have failed. Their losses far outweighed the premiums they had collected, requiring some policyholders to depend on state insolvency funds to pick up the claims. You don’t want to be standing in that line. When choosing any insurance carrier, therefore, make sure you know their rating and that you’re comparing apples to apples.
Reviewing the Losses
What, then, happened in the RecycleGuard program to cause the increase in premiums?
Unfortunately, the RecycleGuard program suffered some significant losses in 2002 and 2003. Those losses have forced the carriers involved in the RecycleGuard program to seek rate increases to cover anticipated future losses. The only way to reverse this trend is for losses to be reduced in the program. Toward that end, ISRI, the RecycleGuard staff, and the program’s insurance carriers have enhanced their loss-control initiatives to address the issues of concern. You’ll be hearing about the various components of that program shortly.
At this point, though, it might be helpful to review the types of losses the program is experiencing in the different categories of coverage:
General Liability: In 2002 alone, there were three general-liability claims in excess of $300,000. These large losses had at least one feature in common: They all involved customers in the yard, including both people unloading material and unattended individuals on the premises. Many of these customers had been to the insured facilities numerous times. This familiarity can give such visitors a false sense of security that they know their way around and know the hazards at the yard.
In one incident, the claimant was a customer who had visited the scrap facility many times. He was in the warehouse area, returning to the office, when a forklift driver hit him, causing severe injury and permanent damage to the claimant’s legs. The forklift driver said he didn’t know the claimant was in the area and didn’t see him. This accident resulted in a claim payment of $1.215 million.
Property: In the 2003 coverage year alone, the RecycleGuard program has suffered more than $6 million in fire losses, including damage to buildings and equipment.
In one claim that incurred a loss of $1.025 million (paid and reserved), flammable material was inadvertently mixed with material to be shredded. During processing, the flammable material ignited, and the resulting flame ignited dust produced during the shredding process. An explosion ensued, causing damage to the machinery as well as the nearby building.
The RecycleGuard program also experienced losses in the automobile and workers’ compensation categories, which will be reviewed in a future column.
In the meantime, you can reduce the risk of incurring a general-liability or property loss by controlling visitors in your facility, requiring good plant housekeeping practices at all times, and stepping up inspections of incoming scrap to detect potentially dangerous items.
—Monica McNally, senior vice president of RecycleGuard/Willis of New Hampshire Inc. (Portsmouth, N.H.). For more information on RecycleGuard, call 888/225-4725.•
Many of you have just gone through a difficult insurance renewal period. I can hear you asking yourself, “How could my premiums increase so dramatically when I didn’t have any claims, or at least not any big ones?”